Economics Nobel Prize Winners Agree: U.S., Europe Sliding Into 'Lost Decade'
Baku, August 23 (AZERTAC). Seventeen winners of the Nobel Prize for economics are gathered this week on Lindau, an island in Germany`s Lake Constance. Die Welt asked the laureates for their take on the ongoing debt crisis and the splintering of the euro zone. The bad news is they all seem to agree.
If politicians don`t get a handle on it soon, the debt crisis will be a game-changer for the whole Western system. The economies of the United States and Europe will face years of stagnation and decline with regard to emerging nations in Asia and Latin America. In fact, the Euro Zone might break apart.
These are some of the views received by Die Welt received in answer to questions it put to 17 winners of the Nobel Prize for economics who are gathered this week for the Nobel Laureate Meetings at Lindau, an island in Lake Constance.
These wisest of men, brought together to discuss pressing world problems, are calling on political leaders to show courage and leadership so they can win back credibility in the eyes of consumers, business leaders and financial markets. Only confidence in the stability of the system can prompt an urgently needed reboot. The core issue, according to the laureates, is nothing less than the continued dominance of Western ideals that have shaped the world order since the Industrial Revolution.
Edmund Phelps, a Colombia University professor who won the prize in 2006 for his theory on growth, says that during the past decades the West has lived above its means and in so doing has already consumed part of its future. That means that the United States, but also Europe now face a long period of stagnation.
Phelps says the West has to pay for the mistakes of the past, but if it can get back on track rapidly, recovery can start that much faster and the mistakes will take less of a toll. He considers the political system to be the greatest problem. In the United States, political parties are busy putting spokes in each others’ wheels, while leaders in Europe have managed to create a system of perverted incentives with banks and insurers having to hold government bonds and governments exceeding agreed-on debt ceilings. Phelps says politicians need to show both more courage and a greater sense of responsibility, facing the fact that they are going to have to be the bearers of bad news -- such as tax hikes -- to their citizens.
Other laureates also see the debt crisis as responsible for the terrible state of the economy. To Eric Maskin, government debt addiction is ruining the Western system and if politicians don`t wake up and act quickly economic turbulence can be expected to go on for years.
James Mirrlees, who won his Nobel Prize for political economics research, rates the chances that the Western world will be facing a long period of stagnation as “very high.” Myron Scholes agrees, adding that both the United States and Europe are looking at a fate similar to Japan`s lost decade if the present muddling continues.
Laureates Daniel McFadden and John Nash believe the future of the euro zone is mainly dependent on Germany, and that Germany should understand that such a zone is in its interests. Weaker members would need to be removed, and in the longer term, Europe will have to build up a stable fiscal system that makes effective control possible, McFadden says.
Other news in this section
